Crypto hedge fund Arca is one of many likely to suffer from the sudden and dramatic collapse of the Terra blockchain's LUNA-powered stablecoin UST.
The firm, which manages about $500 million in assets, told its limited partners in a notice sent Tuesday that it expects Terra's faltering UST stablecoin to eventually bounce back, concluding that the situation presents a buying opportunity.
The release said Arca held an ad hoc meeting of its investment and risk committee to discuss the situation. On Monday evening, UST had fallen to a low of 63 cents and LUNA was trading at $24.60; at press time on Wednesday, UST was still well below $1 at 63 cents and LUNA had fallen below $1.15, according to CoinGecko.
"Following this analysis, we believed, and continue to believe, that UST will ultimately maintain its peg and that a number of attractive opportunities have arisen," Arca CEO Rayne Steinberg wrote to investors Tuesday. "For example, we were able to buy UST at a significant discount to par in the DYF [Digital Yield Fund] and then deposit it with FTX, which paid 100% APY given the imbalance between buyers and sellers during the height of the fear."
Arca declined to comment. FTX did not respond to a request for comment.
Arca operates a digital assets fund in which LUNA is a core holding, according to the note. UST, in turn, is a core stablecoin in the company's Digital Yield Fund, the company said in the letter. Galaxy Digital's Vision Hill unit is an anchor investor in Arca. Galaxy CEO Mike Novogratz got a prominent LUNA tattoo on his left arm in January.
"We have a lot of experience with distressed situations from 2008/2009 to SUSHI and LEO (Bitfinex) in recent years," Steinberg wrote in Monday's note, referring to past crises. "We welcome these opportunities to be buyers when others are fearful."